Treasure Chest | Feb 18 2014
By Greg Peel
The rally in gold over the past two weeks has caught most everyone, including ANZ Research, by surprise. But then again, in financial markets one can fairly comfortably assume that if everybody has the same view (eg gold must fall) then the opposite usually occurs. And occurs sharply, given everyone is caught out.
Gold’s rally has thus been driven by technical factors and exacerbated by short-covering. The signals are currently mixed but ANZ believes the break through the technical level of US$1308/oz, as occurred on Friday night, suggests a broader recovery to 1365 is possible. The speculators have covered their short positions, as evident in three-month high Comex long positions, holdings in ETFs are increasing again and the downside bias in the options market is the lowest since last April.
On the other hand, the likely trigger for gold’s sudden rebound is increased Chinese buying, and the recognition of increased Chinese buying. As to how far the Chinese will chase the gold price is nevertheless the case in point. Gifts of gold are traditional at Chinese New Year which is one reason Chinese buying picked up, albeit the Shanghai market initially traded higher when the Chinese returned from their break as well. But above 1300, notes ANZ, the strong buying has slowed.
ANZ thus expects any rally to the mid-1300s to ultimately fade. The analysts nevertheless remain bullish the gold price on a full-year view.
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